On July 22nd, 2017, I wrote about Bitcoin-a Cryptocurrency, in this paper. Never has any currency been decentralized, but Bitcoin is. The lack of any regulatory authority had made many to view it as a non-starter but it clicked. As said in the last column, it’s a peer-to-peer (P2P) electronic cash system which is aptly called the ‘Internet of Money’. It’s a Crypto-currency which is absolutely hassle-free and circumvents the middle-men and their fees as well, which translates into saving time and money. The question arises that if there’s no authority regulating these transactions, how’s double-spending & other frauds being dealt with. Bitcoin has an intrinsic mechanism of blockchain which records all transactions and this public ledger is continuously updated and viewable by all the users. The users generate these blocks on the network cryptographically to create new bitcoins adding them to the blockchain and earn for keeping it going. This is called Mining. The other way to have them is by buying them and retain until the value goes up. It’s like Gold & Silver in that sense. In my last write up, I wrote its value as $US2663.37 and today one Bitcoin is worth US$16,864.99.
Now, this raises a question. Since bitcoin has some unique characteristics and is not regulated by the current financial system, does it make it more Shariah-compliant or not? To put it more bluntly, is bitcoin halal? To begin with, I’m no authority to answer that. However, I may have my own opinion. Let’s skim over the relevant points.
In Islam, a currency should either have an intrinsic value or represent an asset. We know that in the current system many times, money is created out of thin air, which takes it out of shariah fold. On the other hand, Bitcoin has many characteristics which are akin to ancient Islamic currencies like Gold & Silver. Bitcoin is also mined, rare and the fact that market determines its value. Bitcoin can be used as a currency. It’s increasingly becoming an acceptable form of money. Amazon, Apple’s App Store, Microsoft, Subway, WordPress.com, CheapAir.com, Expedia.com, Dell Bloomberg.com, The US Libertarian Party (as donations), Wikipedia to name a few, accept it as money.
As far as interest (usury) is concerned, it’s evident that bitcoin is more halaal than riba-backed central bank fiat currency. So, the major element of riba is eliminated from it. This currency can’t even be delegitimized simply because a politician wishes to, like demonetization in India.
There’s a concept of risk-sharing in it, and not risk-transfer, which is another differentiating factor between Shariah-compliant finance and conventional finance.
Mathew J Martin, an American Muslim owner of Blossom Finance based in Indonesia opines that as a payment network, Bitcoin is halal. In fact, Bitcoin goes beyond what more conventional closed banking networks offer. Unlike conventional bank networks which use private ledgers where there’s no guarantee that the originator actually owns the underlying assets, Bitcoin guarantees with mathematical certainty that the originator of the transfer owns the underlying assets. Conventional banks operate using the principle of fractional reserve, which is prohibited in Islam.
Despite such favorable qualities, I still think it’s not right to classify it as halaal. Of late, we saw how quickly its value appreciated and plummeted. It’s highly volatile. That brings us to another feature of shariah-compliance, which is the concept of avoiding Gharaar i.e. excessive risk. It could also be categorized as Maysir i.e. gambling if uncertainty knows no limits. This is why I do not think it’s shariah-compliant, albeit it’s better than the currency we normally use. Few other scholars like Sheikh Asim al-Hakeem have objected to it on the premise that since the open ledger records only the wallet numbers and not the real identities, it’s impossible for the authorities to trace the sender or receiver, in cases of it being used by drug cartels, money launderers, and other criminal networks.
In case, if the volatility of bitcoin is done away with and freedom to illegal activities is reigned in, it could be very near to Halal, in my view. Rest Allah knows best.